Find out why professional indemnity insurance is an important form of cover in the real estate industry.
If you provide expert services and advice to clients (e.g. a real estate agent), you are at risk of being sued should you breach your professional duty, whether intentional or not. For example, a real estate agent may manage a property poorly or incorrectly that leads to financial costs for the owner of the property and even a law suit.
Professional indemnity insurance is designed to provide cover against such lawsuits (and the expenses that are incurred). This makes it vital form of cover for many professionals, including real estate agents,
What are the risks of not having real estate professional indemnity insurance?
Professional indemnity insurance provides cover for professionals who offer their expert advice and services to their clients, which is why this type of insurance is suitable for real estate agents perfectly. Real estate agents advise their customers on everything from property prices to selling tactics and how to negotiate with buyers. This leads them to various risks including:
- Negligence in providing service
- Bad property management
- Failing to comply with provisions and laws
- Not meeting the duty of care
- Auctioneering and sales risks e.g. giving clients false expectations
Risks that professional indemnity covers
Professional indemnity insurance policies offer cover for a whole host of risks relevant to real estate agents, including:
- The non-disclosure or the misrepresentation of important property details
- Errors in documentation relating to property purchases
- Failing to follow auction rules and laws
- Property management failures and issues
- Fraud and dishonesty
- Wrongful or inadequate advice to clients
- Loss of client documentation
- Libel, slander or defamation
Professional indemnity insurance claims
Under a professional indemnity insurance policy, it’s important to notify your insurer as soon as you’re made aware of a claim made against you. This could be in the form of a written demand from a client or solicitor, or simply a verbal complaint or request for compensation. If you become aware of circumstances that could lead to a claim, it’s essential that you inform your insurance provider of this as soon as possible.
“Claims Made” Professional Indemnity Cover
Professional indemnity insurance policies are offered on a ‘claims made’ basis. What this means is that the policy provides the protection you need is the one that is in force when a claim is made against you, not when you actually provided the professional services related to the claim.
As an example of this, you may have closed an important sale in 2011, but you were not notified of a claim relating to that sale until 2014. You’ve changed insurance providers in the interim period. The insurance policy that will provide coverage is the one that’s in effect in 2014.
FAQs about real estate professional indemnity insurance
Q. Do I really need professional indemnity insurance?
- A. Yes. This is an essential form of cover for real estate agents, providing much-needed financial protection against a whole range of possible lawsuits. In some areas of Australia, a certain level of professional indemnity cover is actually mandatory for real estate professionals.
Q. What is run off cover?
- A. As this type of insurance is offered on a ‘claims made’ basis, you can find yourself the subject of a lawsuit well after you have retired and still need to have a level of cover in place. Run off cover ensures you are protected even when you are no longer working.
Q. What else can I do to protect my business?
- A. Consider developing a risk management plan to minimise your exposure to any potential risks. Perhaps this could mean evaluating your property management procedures and structures, or looking at implementing a higher level of professional training for all employees.
Professional indemnity insurance is a crucial form of cover for real estate agents, providing important financial protection against a host of unique risks. However, in order to ensure you end up with the right policy for your needs, compare your options and seek advice from an experienced insurance broker.